Lenders Now Liable For "Excessive" Hazard Insurance

Pennsylvania now holds lenders liable for requiring hazard insurance which exceeds structures replacement value.

The attached recently enacted Mortgage Property Insurance Coverage Act, 7 P.S. § 6701, et seq. ("Act") provides that:
No lender may require a borrower, as a condition of obtaining or maintaining a secured loan, to obtain property insurance coverage which exceeds the replacement value of buildings and structures situate on the land used to secure the loan. A borrower on a loan secured by real property may not be required to insure the value of the land.

Thus, any loan closed after July 5, 2008 involving hazard insurance exceeding structures’ replacement value violates the Act and renders lenders liable.

Unfortunately, the Act fails to define "required" or "as a condition of obtaining or maintaining secured loan", explain whether a private action exists and, if so, what the penalties are, or rule out Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1, et seq.’s treble damages and attorneys’ fees penalties for Act violations.

Further, the Act provides no safe harbor for complying with Fannie Mae/Freddie Mac mortgage form "Section 5 Property Insurance" language that:
Borrower shall keep improvements now existing or hereafter erected on Property insured against loss . . . included within term "extended coverage" and any other hazards . . . for which Lender requires insurance. This insurance shall be maintained in amounts including deductible levels and for periods Lender requires.